Fed Hikes Rates to 3.75%–4%: What It Costs Small Business Borrowers
The Fed raised rates 25 bps on Sept. 16, 2026, its first hike since 2023. Here's what it means for lines of credit, SBA loans and cash planning.
Last updated: September 17, 2026
The Federal Reserve raised its benchmark interest rate by a quarter point on Wednesday, September 16, lifting the federal funds target range to 3.75%–4.00%. It was the Fed’s first hike since July 2023, and the vote was unanimous at 12-0. For small businesses carrying variable-rate debt, borrowing costs start going up this billing cycle.
The Fed raised rates 0.25 percentage points to 3.75%–4.00% because inflation is still running well above its 2% target. Most officials expect one more hike in 2026. Business lines of credit, credit cards and variable-rate SBA 7(a) loans tied to the prime rate will likely cost about 0.25 points more right away.
What happened
The Federal Open Market Committee moved the range up from 3.50%–3.75%, according to Fox Business. Chair Kevin Warsh said inflation “is too high and has been for too long” and that the committee’s “predominant focus is on the price stability side.”
The inflation numbers support that view. Fox Business reported PCE inflation at about 3.6% in August, with core PCE near 3.2%. Higher energy prices are a big part of the increase. The labor market isn’t forcing the Fed’s hand the other way: unemployment is near 4.1%, and job openings and weekly hours are both rising.
The Fed’s updated projections point to more hikes. CNBC reported that 16 of 18 participants expect another increase, and four of them see room for two. Year-end projections for the policy rate range from 4.1% to 4.4%. Stocks fell after the announcement, and the Dow closed down about 1.3%.
Why it matters
This is a turn. For most of 2026, the question for owners was when rates would come down. Now the Fed has signaled that the next move is more likely up, and Warsh said he “would be hard-pressed to describe broad financial conditions as restrictive.” That means the Fed doesn’t think it has tightened enough yet.
Measure
Before Sept. 16
After Sept. 16
Fed funds target range
3.50%–3.75%
3.75%–4.00%
Prime rate (typical bank convention: upper bound + 3)
6.75%
7.00%
Extra annual interest on $100,000 of prime-based debt
—
about $250
Fed’s year-end 2026 rate projections
—
4.1%–4.4%
PCE inflation, August (Fox Business)
about 3.6% (target: 2%)
What this means for small business owners
Check which of your debt floats. Lines of credit, business credit cards and most SBA 7(a) loans are priced off prime and will reprice within weeks. Fixed-rate term loans and equipment financing won’t change.
Plan for two hikes, not one. The Fed’s projections leave room for another quarter point by December. In your cash-flow forecast, model interest on variable debt at prime plus 0.50 points above today’s rate.
Pay down or term out revolving balances. If a line of credit is covering a long-term need, like equipment, a buildout or a slow receivable, look at locking in a fixed rate before the next meeting.
Make idle cash earn more. Higher short-term rates also help savers. Operating cash sitting in a zero-interest checking account now costs you more in lost yield.
Price for sticky costs. The Fed is responding to inflation that’s still hitting your inputs. Review your pricing now instead of absorbing another quarter of higher costs.
“Inflation is too high and has been for too long.” — Fed Chair Kevin Warsh, September 16, 2026, via Fox Business
Frequently asked questions
Did the Fed raise rates in September 2026?
Yes. On September 16, 2026, the FOMC voted 12-0 to raise the federal funds target range by 25 basis points to 3.75%–4.00%. It was the first increase since July 2023.
Will my SBA loan payment go up?
If it’s a variable-rate SBA 7(a) loan tied to prime, yes, usually at the next rate adjustment. Fixed-rate SBA 504 loans aren’t affected.
Is another rate hike coming?
Most Fed officials expect one. CNBC reported that 16 of 18 participants project another increase, and year-end rate projections run from 4.1% to 4.4%.
Why did the Fed raise rates?
Inflation is still well above target. PCE inflation was about 3.6% in August, driven in part by energy prices, and the labor market remains solid.
The bottom line
Expect borrowing costs to rise, not fall. Owners who find out this week which of their debt floats, and fix or pay down what they can before the Fed’s next meeting, will feel the rest of this tightening cycle far less.
